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Measuring and Analyzing Sovereign Risk with Contingent Claims
Author:
Michael T. Gapennull

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,
Mr. Dale F Gray
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https://orcid.org/0000-0001-5034-8556
,
Cheng Hoon Lim
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Ms. Yingbin Xiao
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Series:
IMF Working Papers
Volume/Issue:
Volume 2005: Issue 155
Language:
English
Publication Date:
01 Aug 2005
DOI:
https://doi.org/10.5089/9781451861747.001
ISBN:
9781451861747
ISSN:
1018-5941
Pages:
49
Keywords:
WP; sovereign assets; asset value; balance sheet
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper develops a comprehensive new framework to measure and analyze sovereign risk. Since traditional macroeconomic vulnerability indicators and accounting-based measures do not address risk in a comprehensive and forward-looking way, the contingent claims approach is used to construct a marked-to-market balance sheet for the sovereign, and derive a set of credit-risk indicators that serve as a barometer of sovereign risk. Applications to 12 emerging market economies show the risk indicators to be robust and highly correlated with market spreads. The framework can help policymakers design risk mitigation strategies and rank policy options using a calibrated structural model unique to each economy.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2005: Issue 155